Collateral quality equal to cost
01 November 2012 Sibos
Image: Shutterstock
Almost all of the respondents to a Six Securities Services survey believe that the quality and cost of collateral should be given equal consideration.
Whilst 92 percent of participants consider the quality of collateral is as important as the cost, 85 percent of respondents believe that selecting a market infrastructure on cost alone increases exposure to risk.
The data released from a micro-survey conducted at the sibos conference in Osaka, Japan, recorded the opinions of sell-side banks and broker dealers relating to collateral and the safety of market infrastructures.
Commenting on the results Thomas Zeeb, CEO of Six Securities Services, said: “Some CCPs believe that generating new collateral by securitising and repackaging existing portfolios is a way forward. I fundamentally disagree with this approach.”
“That the industry is already thinking about repeating the sins of the past, by repackaging securities to create new collateral pools is frightening. Collateral should be simple, of high quality, liquid, and easily-valued. Competing on poor collateral quality sows the seeds for the next failure and subsequent crisis,” added Zeeb.
Focusing on the amount of collateral available, 69 percent of people believe that there is enough collateral to go around.
“The opinions of the largest sell-side banks is that there is enough collateral in the system, but due to regulatory requirements, the liquidity is not being distributed efficiently,” said a statement from Six.
“Collateral management and its optimisation are major concerns for financial institutions at the moment. Collateral is not being distributed efficiently,” concluded Zeeb.
The report, based on discussions held during the Six Securities Services’ post-trade forum, is available now.
Whilst 92 percent of participants consider the quality of collateral is as important as the cost, 85 percent of respondents believe that selecting a market infrastructure on cost alone increases exposure to risk.
The data released from a micro-survey conducted at the sibos conference in Osaka, Japan, recorded the opinions of sell-side banks and broker dealers relating to collateral and the safety of market infrastructures.
Commenting on the results Thomas Zeeb, CEO of Six Securities Services, said: “Some CCPs believe that generating new collateral by securitising and repackaging existing portfolios is a way forward. I fundamentally disagree with this approach.”
“That the industry is already thinking about repeating the sins of the past, by repackaging securities to create new collateral pools is frightening. Collateral should be simple, of high quality, liquid, and easily-valued. Competing on poor collateral quality sows the seeds for the next failure and subsequent crisis,” added Zeeb.
Focusing on the amount of collateral available, 69 percent of people believe that there is enough collateral to go around.
“The opinions of the largest sell-side banks is that there is enough collateral in the system, but due to regulatory requirements, the liquidity is not being distributed efficiently,” said a statement from Six.
“Collateral management and its optimisation are major concerns for financial institutions at the moment. Collateral is not being distributed efficiently,” concluded Zeeb.
The report, based on discussions held during the Six Securities Services’ post-trade forum, is available now.
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